Bond market special supply丨 Shandong Ruyi overseas eurobond default, shaking the control of SMCP Group, is planning to introduce war investment

21st Century Business Herald reporter Jiang Shiqiao Beijing reports that the French fashion group SMCP acquired by Shandong Ruyi Technology Group (hereinafter referred to as "Shandong Ruyi") may face a change of control.

Recently, SMCP, a company listed on the Euronext Paris, announced that on September 21, 2021, EuropeAn TopSoho, a Luxembourg company under Shandong Ruyi Technology, failed to redeem the 250 million euros of exchangeable euro bonds due.

SMCP is the parent company of French fashion brands such as Sandro, Maje, Claudie Pierlot and others. In 2016, Shandong Ruyi's subsidiary, European Topsoho, invested 1.3 billion euros to become the controlling shareholder of the French fashion group SMCP, holding a 53% stake in SMCP Group. SMCP Group is also an important holding company in the consolidated statements of Shandong Ruyi.

Since Europapan TopSoho failed to remedy the above-mentioned overdue actions by 30 September 2021, this also means that the french SMCP Group held by Europaean Topsoho may be transferred.

"There are still a series of legal issues in the follow-up to the equity transfer of SMCP Group, so it cannot be said that the transfer has been determined, and there is still room for maneuver on this issue." On October 12, relevant people in Shandong Ruyi exclusively responded to the 21st Century Business Herald reporter.

<h4>Overseas acquisitions are falling apart</h4>

According to the data, European Topsoho issued a three-year convertible bond of 250 million euros in September 2018. Shandong Ruyi currently holds a 53.39% stake in SMCP through European TopSoho, while the Eurobond involves a 37% stake in SMCP.

Under the preliminary agreement between Europapan Topsoho and creditors, creditors can claim to recover 37% of the capital held after the bonds mature, but if this amount is less than the promised €250 million, creditors can also claim another 16% stake in Europapan Topsoho.

According to a relevant person in Shandong Ruyi, the company is already going through legal procedures, and things are still in progress. There is still room for maneuver in the key SMCP Group's equity issues, and the shares involved in the bond default are not all of the SMCP's shares held by the company.

The person told the 21st Century Business Herald reporter that it is expected that there will be the latest progress on the 20th of this month.

According to the data, as of the end of 2020, SMCP's total assets were 2.412 billion euros, and the asset-liability ratio was 54.60%. In 2020, SMCP achieved operating income of 873 million euros, net profit of -102 million euros and net operating cash inflow of 75 million yuan.

The impact of the epidemic is also very obvious. According to the data, SMCP Group's sales performance in the Asia-Pacific region in 2020 was the best, of which Chinese mainland sales rose by more than 20%, but dragged down by the European and American markets, the overall sales fell by more than 20% year-on-year.

However, from the situation in the first half of this year, SMCP's operating data has improved.

"The operations of the group's subsidiaries are independent of each other, and the equity issue of SMCP has no direct impact on the group's operations," a relevant person from Shandong Ruyi responded, "The textile industry affected by the epidemic has indeed been greatly impacted, and we are also actively coping with it to tide over the difficulties." ”

In addition to the French SMCP Group, Ruyi Technology also holds three listed companies worldwide, including the A-share listed Ruyi Group (002193.SZ) and the Hong Kong-listed Libang Holdings (0891. HK), and Renown, Japan (delisted).

This stems from more than 40 billion yuan of global mergers and acquisitions carried out by Shandong Ruyi in the past decade. Shandong Ruyi's M&A path has also reached a peak in the past four years, and the frequent acquisition of overseas well-known brands has also made Shandong Ruyi known as the "Chinese version of LVMH Group" by the outside world.

But today, most of the major brands are in trouble.

In December 2020, Standard Chartered Bank filed a liquidation application with the court for lippon group due to its failure to repay the $150 million loan, and Shandong Ruyi's high-end menswear brand Gieves &amp; Hawkes, which is indirectly controlled by Libon Group, was on the verge of bankruptcy; in addition, RenOWN, a Japanese apparel company acquired by Shandong Ruyi a decade ago, has also started bankruptcy liquidation proceedings.

Northeast Securities pointed out in the interim trustee management report that if Shandong Ruyi fails to properly handle the overdue matters of the European Topsoho Eurobond, it may eventually affect its control over smCP, which in turn will have a significant negative impact on its financial operations.

<h4>30 billion interest-bearing liabilities to be solved</h4>

In fact, shandong ruyi's bonds issued in the domestic market have defaulted.

At present, Shandong Ruyi issued a total of 3 bonds, "18 Ruyi 01", "19 Ruyi Technology MTN001" and "17 Ruyi Technology MTN001", with a total bond balance of 3.5 billion yuan.

At present, the principal and interest of the three bonds, as well as the corresponding liquidated damages and penalty interest, have not been paid. On September 18 this year, it was the day when Shandong Ruyi paid the interest on the "18 Ruyi 01" bond, but due to the tight liquidity, as of the end of the maturity payment date, it failed to raise the full repayment funds as agreed.

Northeast Securities pointed out that Shandong Ruyi is currently involved in a number of major lawsuits, debt overdue, asset freezing, and the high limit of directors and supervisors, and the credit status has not improved so far.

"Earlier, when the bonds were resold, the issuer negotiated not to sell back and hoped to extend the period." A private equity institution bondholder told the 21st Century Business Herald reporter, "The follow-up issuer also has a negotiated settlement agreement, and I hope that everyone will agree to the extension." ”

According to the 21st Century Business Herald reporter, Shandong Ruyi has now solved the debt problem through the Shandong Provincial Debt Committee to implement debt deferral, interest rate cuts, and set buffer periods for member units within 3 years.

For interest-bearing debts and overseas debts outside Shandong Province, Shandong Ruyi said that the failure to repay interest-bearing debts on time will have an impact on the company's financing, and is currently actively discussing solutions with other creditors and striving to reach an agreement as soon as possible.

According to the data of the 2021 semi-annual report, as of the end of the reporting period, the balance of interest-bearing liabilities of Shandong Ruyi was 30.13 billion yuan, of which the balance of corporate credit bonds was 3.472 billion yuan, accounting for 11.52% of the balance of interest-bearing liabilities.

Among the corporate credit bonds, including the balance of corporate bonds of 1.472 billion yuan and the balance of non-financial corporate debt financing instruments of 2 billion yuan, and these 3.472 billion yuan of corporate credit bonds will face repayment in the next year. Shandong Ruyi is already expected to be unable to redeem the above-mentioned credit bonds on schedule.

In addition, Shandong Ruyi has also been involved in a number of major lawsuits and the average amount is huge, and some litigation cases have entered the enforcement stage, resulting in many restrictions on high consumption by the company and relevant responsible persons. This will also have an impact on corporate financing and debt servicing.

On October 12, Shandong Ruyi said in the announcement of the progress of the disposal of defaulted bonds that as of now, the company's production and operation have gradually recovered, and the main business income and profitability have grown steadily, which will further enhance the company's future cash repayment ability. At the same time, the company will accelerate the introduction of strategic investors and actively raise funds through various channels.

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